The middle class does NOT extend up to $400K

The New York Times is reporting that President Obama is backing off his pledge to allow the Bush tax cuts on income more than $200,000 ($250,000 for couples) to expire, instead proposing to only allow the tax cuts on income above $400,000 to expire. Though not quite as bad as House Minority Leader Nancy Pelosi’s preemptive cave last summer in proposing to shift the threshold from $200,000 to $1 million, this is still a really bad idea.

Beyond the revenue loss, it’s simply ridiculous to claim that households making up to $400,000 are “middle class”; as we’ve shown before, even households up to the $200,000–250,000 threshold probably shouldn’t be considered “middle class.” Yes, it’s notoriously hard to pin down an exact definition of “middle class,” but it is clearly intended to characterize households that fall roughly in the middle of the income distribution. Yet, as the below graph shows, all the thresholds mentioned above include households whose income falls well outside the area where most households are concentrated.

This isn’t surprising. More than 87 percent of taxpayers make less than $100,000 a year, according to IRS data, and the average household makes roughly $50,000 a year. This means that households making between $200,000 and $400,000 are making between four and eight times what most American households earn. Stretching the definition of “middle class” to include households with more than $200,000 is to render the term meaningless.

Quibble: Should make explicit that 50k is median, not mean. The rest of your discussion is median-type thinking, which is the proper way to think of incomes. (‘Average’ tends to imply ‘mean’ unless ‘median’ is specified.)

Monkeydaddy

An elderly couple making 35k following working careers averaging real 110k incomes would be middle class. When I was in grad school, I maxed out the EITC with gross income at 9k but was a proto-bourgeoisie. Median income this year is a flawed indicator of middle class standing in overlapping generations. ($400k is much more flawed, for other reasons!)

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